A money order is a secure alternative to cash or a personal check, which you can use to send money or pay bills. It works much like a check, and is usually issued by a government or banking institution. You can cash or deposit a money order into a bank account.
Money orders are readily accepted and converted to cash, often used by people without access to a standard checking account. They are an acceptable form of payment for debts, both personal and business. You can buy a money order for a small service fee from most banking institutions and many other locations. Money orders were first issued by American Express in 1882 and later became popularized as traveler’s checks.
Key Takeaways
- Money orders are a safe and secure alternative to using cash or checks to pay smaller debts and bills.
- You can purchase money orders at banks and credit unions, as well as at various locations like big-box stores, drug stores, post offices, and certain gas stations.
- When you buy or cash a money order, a small fee may apply.
- If you lose a money order, it can usually be replaced for a fee.
- International money orders can be an inexpensive way to send money across borders quickly.
How Money Orders Work
If you buy a money order, you’ll need to fill out the recipient’s name and the amount they should receive. Domestic money orders have a maximum limit of $1,000, requiring multiple purchases for higher amounts. Carefully fill out the money order as it is a one-off purchase and keep good records of it.
Your money order will show the payer’s name, the issuer’s name, and the cashable amount. This dollar value doesn’t include the fees. Fees can vary based on the issuing location, with banks typically charging more than convenience stores.
When you pay for a money order, it comes with a receipt containing the serial number. Retain this receipt until the money order is cleared. Without it, tracing a money order is complicated or even impossible.
Advantages and Disadvantages of a Money Order
Advantages
- Doesn’t include sensitive information: Paying with a money order is often safer than a personal check, which includes sensitive account details.
- Cashing flexibility: Recipients can cash the order at their local banks or credit unions, and sometimes at grocery and drug stores.
- Depositable for free: Money orders can be easily deposited into bank accounts at no cost, making them a flexible payment solution.
- International usability: Money orders can be issued in one country and cashed in another, providing a convenient means to send money abroad.
Disadvantages
- Harder to track: Tracking money orders involves filling out forms and paying extra fees, a process that can take weeks.
- Transaction fees: Buying and cashing money orders often involves fees, which can be avoided by using specific methods or institutions.
- Potential delays: Funds might be delayed based on where the money order is cashed, depending on the bank’s policy.
- Risk of fraud: Fraudulent money orders can be an issue. Always ensure the money order is genuine before cashing it.
How to Buy a Money Order
Money orders can be purchased at banks, credit unions, drug stores, grocery stores, convenience stores, and check cashing locations, including institutions like MoneyGram and Western Union. The U.S. Postal Service also offers money orders.
To buy one, bring enough cash or a debit card to cover the money order’s amount and any associated fees. For transactions above $3,000, present your ID and fill out a special form to prevent money laundering.
How Much Do Money Orders Cost?
Although money orders come with a fee, it usually represents a small fraction of the order’s value. For instance, the U.S. Postal Service charges $2.10 for money orders up to $500, and $3.00 for orders between $500.01 and $1,000. Fees are generally lower in military postal facilities.
Fees may vary for commercial institutions, with international money orders incurring higher costs.
Money Orders vs. Cashier’s Checks
A cashier’s check, like a money order, is used for payments where cash or personal checks aren’t practical. Cashier’s checks are written by a financial institution against its own funds, making them more reliable than personal checks.
Due to the guaranteed funds, cashier’s checks are used for larger purchases like homes or vehicles. Unlike money orders, which typically cater to smaller transfers (capped at $1,000 by many issuers), cashier’s checks offer quicker fund availability.
Alternatives to Money Orders
Other secure ways to send guaranteed funds include traveler’s checks, wire transfers, bank drafts, and cashier’s checks. In some cases, personal checks, debit cards, credit cards, or online payment apps may suffice.
However, money orders do not require special technology for acceptance and cannot bounce, offering a unique combination of security and convenience.
How Do You Fill Out a Money Order?
When purchasing a money order, include the recipient’s name in the “Pay to the Order” field, and your legal name and address in the corresponding fields. Fill in the transfer amount, sign, and date it. Retain the receipt for record-keeping.
Where Can I Cash a Money Order?
Cash a money order at a bank, credit union, post office, check-cashing store, or selected grocery and convenience stores. Endorse it and verify your identity. Cashing may incur a fee, but this can be avoided by depositing it into a bank account.
How Long Is a Money Order Good For?
Money orders do not expire but may incur additional service charges if cashed more than a year after issuance, depending on the state and issuer. U.S. Postal Service money orders do not expire or lose value.
The Bottom Line
Money orders offer a secure way to make small to medium-size payments when cash or personal checks aren’t practical. They provide immediate cash availability and security features like replacement (with a receipt). Unlike cash, they can’t bounce, making them a reliable payment method.
Related Terms: cashier’s checks, wire transfers, bank drafts, travelers checks.
References
- Smithsonian National Postal Museum. “American Express”.
- U.S. Postal Service. “Money Orders”.
- Western Union. “Money Orders: Cashing and Sending in the U.S.”
- U.S. Postal Service. “Money Orders - The Basics”.
- PNC Bank. “Consumer Funds Availability Policy”.
- Federal Deposit Insurance Corp. “Bank Secrecy Act, Anti-Money Laundering, and Office of Foreign Assets Control”, Page 8.1-6.
- U.S. Postal Service. “Sending Money Internationally”.
- Western Union. “Cashier’s Checks: Everything You Need to Know”.
- Western Union. “How to Fill Out a Money Order”.
- Intuit. “How to Cash a Money Order”.
- U.S. Postal Service. “Sending Money Orders”.
- Western Union. “Do Money Orders Expire”?
